What is the issue?
- The Centre has recently withdrawn the Financial Resolution and Deposit Insurance Bill, 2017. Click here to know more on the Bill
- However, there are lot many issues in relation with this, that remain unaddressed.
Why was the opposition?
- The “bail-in” clause is one of the major provisions that had triggered opposition to the Bill.
- Banks, by the very nature of their business, are essentially dependent on the funds lent to them by depositors.
- This serves as the pool of lendable resources from which they provide credit to borrowers.
- The Bill essentially disturbs this crucial aspect.
- The bill makes a depositor apprehend of risking her hard-earned savings placed in a bank.
- The depositor is forced to partake in the pain of financial losses if the bank is forced into resolution on account of distress.
What is the rationale for withdrawal?
- The government did make efforts to reassure the public, explaining the rationale for the Bill.
- It also tried convincing the public on the built-in “safeguards” relating to the bail-in provision.
- However, it failed to make any progress.
- So resolving the issues require a comprehensive examination and reconsideration of the Bill.
- Therefore the government deemed it “appropriate” that the Bill be withdrawn.
What are the concerns and way forward?
- A bank failure can pose risk to the overall financial stability.
- So it does need specialised considerations to cope with large financial corporations on the verge of breaking down.
- But the existing frameworks have shortfalls in resolving bankruptcy scenarios among financial entities.
- The withdrawal of the FRDI Bill is thus not a solution; policymakers should reappraise the existing mechanisms.
- The progress of Insolvency and Bankruptcy Code in addressing debt resolution in the banking sector must be evaluated.
- It must also look at ways to strengthen the Deposit Insurance and Credit Guarantee Corporation.
- Holistic measures to prevent further erosion of public faith in the banking system are essential.
Source: The Hindu
